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The Ceylon Petroleum Corporation (CPC) has borrowed a staggering Rs. 80 billion from state banks during the past twelve months to cover up its massive losses, Ceylon Today learns.

As a result of these mammoth loans provided to the Ceylon Petroleum Corporation, the state banks are now heading towards a serious crisis, Finance Ministry sources said.

The CPC has lost Rs.89 billion in 2011 and is expected to lose Rs. 63.6 billion even after the oil price hike this year, a senior official of the corporation told Ceylon Today.

In this context, he said, that the CPC has no option but to borrow money from state banks on a regular basis to continue the day to day operations. But this, however, has plunged the corporation into a deeper crisis.

Commenting on the matter, UNP Parliamentarian and veteran banker Eran Wickremaratne said this trend has jeopardized the country’s banking sector. At the same time, it weakens the institution – the Ceylon Petroleum Corporation- to a large extent, Wickremaratne said.

He also added that the government is in the process of transforming an institutional crisis into a banking crisis.

“This is what you call a cash-strapped situation. When an institution is cash strapped, the owner- in this case the government- has to pump capital. If the government cannot pump capital to overcome the massive losses, the CPC should adopt corrective measures. Borrowing money is not an option anymore,” he explained.

When contacted by Ceylon Today, Acting Minister of Petroleum Sarana Gunawardena said the Ministry and the CPC is already having discussions with the Treasury to get this debt issue sorted out.

“We are yet to receive payments from the Ceylon Electricity Board, Defence Ministry and airlines. That is why the CPC is facing financial hardships. In spite of these hardships, the CPC needs to keep the oil supply persistent. Therefore, this is a complicated matter which cannot be solved overnight. That is why we are discussing with the Treasury” the Acting Minister said.

Treasury Secretary Dr. P.B. Jayasundara was not available for comment.